Business Directories

Yemen to clamp down on public sector spending

Dubai, July 10, 2014

Yemen's president unveiled a clampdown on public sector spending on Thursday, including a feasibility review of state-owned companies and a ban on all but economy class travel for ministers in the Arabian Peninsula country.

Yemen has struggled to pay public sector salaries and finance food and energy imports, which has led to power cuts and fuel shortages as its fight against al Qaeda militants and other rebel groups lays waste to state finances.

"Joint private and public ventures and other economic entities owned by the state will be reviewed for economic feasibility," a government statement said late on Wednesday, describing President Abd-Rabbu Mansour Hadi's package as urgent.

It did not say how much it expected to save, how it would review state firms or when results might be seen.

"It is difficult to put a number on it but we expect to save billions of Yemeni rials," Mohammed Albasha, spokesman for the Yemeni Embassy in Washington, told Reuters.

Among the measures, recruitment has been frozen for all state institutions, procurement of cars has been halted, and international travel for senior officials will be restricted.

"Government officials, including ministers, are to be limited to a maximum of four overseas trips a year," the statement said. "State officials are no longer permitted to travel first or business class."

Hadi has been trying to stabilise the country for over two years, after political and economic turmoil forced his predecessor to step down. But the state's push against Islamic militants and rebels has sparked attacks on oil pipelines that are crucial to obtaining up to 70 percent of state revenues.

Yemen earned just $671 million from exporting crude oil in January-May, nearly 40 percent less than in the same period last year, and the central bank's foreign asset reserves have shrunk to $4.6 billion, the lowest level since end-2011.

The Sanaa government will create a military unit from its special forces to help combat tax and customs evasion in a country that is awash with weapons, the statement said.

At the same time, the finance ministry is to review the tax collection process and resolve tax debts.

Sanaa did not announce any measures directly aimed at reducing widespread corruption - a major drain on state funds.

ENERGY SECTOR

Yemen is hoping to secure a long-discussed loan from the International Monetary Fund that could help unlock more donor funds, held back by fears of corruption and a lack of progress in economic reforms.

Yemen's finance minister told Reuters in May that the country was seeking "substantially more" than the $560 million which the IMF proposed, and that the Fund's board was expected to finalise the deal in July.

The IMF has pressed Yemen to cut the energy subsidies which cost it $3.07 billion last year, equivalent to 30 percent of state revenue and 21 percent of expenditure.

But reducing subsidies is hard in a country where a third of the population of 25 million lives on less than $2 a day, and this week's austerity package did not address subsidies.

"The authorities recognise the need for subsidy reform, but are not ready to implement stronger measures at this stage, even gradually," the IMF said in a report on such reform in the region published on Thursday.

"Price adjustment is currently not included in the government's reform plan," it said.

Instead, the government said it would review the cost of drilling and extracting crude oil to bring it down to global averages, while the ministries of defence and interior would work to resolve security problems at production sites.

The president also banned the state-owned Public Electricity Corp, which operates most of Yemen's power generating capacity and the national grid, from building new diesel power plants, leasing them or financing expansion of existing ones.

"The government must work on expanding gas and coal powered plants to replace diesel plants. Plans to install and operate Mareb's Second Gas Powered Station by the end of January 2015 will be expedited," the statement said, referring to a power project in Mareb province that was halted in 2010. – Reuters